THE CHALLENGE

When Margaret Thatcher came to power 55 per cent of households were owner occupied. By the time she left office, that figure had increased to 66 per cent – finally peaking at just under seventy per cent in 2001 and 2002. [1]

Her great achievement was to extend home ownership to more people than ever before. This didn’t happen by accident – radical and popular policies like the Right to Buy were required to bring down the barriers and spread opportunity.

However, Thatcher’s legacy is being undone. The slide in home ownership began after 2002 – and has continued ever since. By 2011, the proportion of owner occupied homes was down to 64 per cent. [2] At this rate of decline, home ownership will be back to pre-Thatcher levels within the next two decades.

Home ownership is down everywhere in the UK, but the steepest falls are in London and the surrounding regions. [3] Thus, in the most dynamic parts of the British economy, aspiring home owners are being pushed off the property ladder. For millions of people growth is becoming disconnected from opportunity.

A crisis for young people

Unsurprisingly, it is the young who are bearing the brunt. [4] In Britain, the average age of first time buyers stood at just 24 back in the 1960s. It has been on a rising trend ever since [5] – increasing sharply since the credit crunch, exceeding 40 in some regions. [6] There’s strong evidence to show that young adults are putting off marriage and having children,[7] not because they want to, but because they can’t afford a family home. Instead of starting families of their own, increasing numbers of twenty and thirty-somethings are moving back in with their parents.[8]

The immediate cause of this crisis of affordability is obvious – houses are just too expensive. In the mid-1990s the average price of a house for a first time buyer was between two and three times average earnings. But in the subsequent decade the ratio rose to over five times average earnings and more than seven times in London. The crash that followed only brought about a partial correction – and the ratio in now climbing again. [9]

A crisis of quality

At the same time, buyers are getting a lot less for their money. Despite having one of the tallest populations in Europe,13 Britain now builds the smallest new dwellings (in Western Europe) – smaller than countries with plenty of land like France and Spain, but smaller too than countries with high population densities like Holland and Denmark. [10]

We should regard this state of affairs as a national catastrophe – a crisis that isn’t just undermining living standards and economic stability, but individual aspiration, personal well-being and family life, too.

OUR RESPONSE

Britain’s housing crisis is one of affordability. The cost of new housing must come down and its quality must improve. However, to make this happen we have to look beyond the conventional solutions.

A planning free-for-all is not the answer.

Above all we need to reject the notion that the only solution to the housing crisis is a planning free- for-all, in which environmental protections, economic stability and local democracy are crushed beneath a development juggernaut.

What gets forgotten is that the cost of land is a function of both supply and demand. While the supply of land can be artificially constrained by excessively restrictive planning policies; the demand for it can be artificially expanded by distorted investment incentives.

This helps explains why the building booms of the previous decade didn’t deliver affordable housing – in country after country, [11] the result was runaway house price inflation that destabilised the global economy. The biggest exception was Germany, where prices stayed flat in this period [12] – despite a marked decline in the rate of new construction. [13]

The problem is speculation

The most important reason why demand overwhelms supply is not the planning system, but speculation. No matter how fast we can make land and construction capacity available, the money markets can always move faster – pumping cheap credit into property investments. Any government move to undermine sensible planning protections only serves to set off the feeding frenzy.

This is what happened under the previous government, which used top-down planning targets to force development through the system. The result was a building boom of sorts from 2001 to 200718 – but one in which home ownership and lending to first-time buyers fell, while house prices and buy-to-let mortgages shot up.[13]Furthermore, the whole of the increase in the rate of house building was in the form of flats and not the houses with gardens that most families want. [14]

A pro-ownership planning policy

To provide both affordability and quality, we need to freeze out the speculators. In an advanced society there is no such thing as a completely free market in land for development – central and local government will always be involved in its allocation through the planning system.
We believe that the state should use this power to actively favour home ownership over professional property investment.

Therefore, we propose:

To give planning authorities the option of requiring that homes in a new development only be sold to people intending to live in them.

This new power would be exercised locally on a case-by-case basis as a condition on planning consent for new developments – and where appropriate it could be used specifically to help first-time buyers or participants in self-build schemes.

Related taxation policies should be aligned with the pro-ownership planning policy – for instance by using higher taxes on professional property investment (e.g. land banking by developers) to pay for the progressive phasing out of stamp duty on ordinary home purchases. [15]

New paths to ownership

Helping people to own their homes shouldn’t be left to the private sector – or the mortgage market – alone. Under Margaret Thatcher, the Right to Buy was an immensely successful example of direct government action to extend ownership throughout society. In the 21st century, we need to have the same scale of ambition.

Therefore, we propose:

An end to all mortgage subsidies – such as the Help to Buy scheme and the ‘cheap money’ policies that artificially suppress interest rates and push-up house prices (see chapter 3).

Instead, central government support should be switched to enable councils, housing associations and other registered social landlords to build new homes for sale.

This new support would be conditional on making these new homes available through schemes that help tenants to become owners.

Experimentation with different methods – including part rent / part buy schemes and the conversion of rent into an equity stake in a stock of properties – would be encouraged.

Once a track-record is established, the most successful of these new paths to ownership would receive additional government help so that they can expand.

The long-term aim would be to switch the multi-billion pound flow of housing benefit money from the private rented sector to ownership-enabling social housing.

A community-led planning system

Building more and better housing still requires a planning system that is designed to deliver, not obstruct, these vital public goods. Despite some recent steps in the right direction, the planning process is still back-to-front – it starts off with developers deciding what to build, and then councils and local residents deciding what they want to object to. Conflicts are settled through an often long and expensive adversarial process in which the main beneficiaries are lawyers and consultants.

This needs to be turned around. The planning process should start with what the community wants. Developers should then be able to bid for the development rights – with resources reallocated from conflict to investment in quality design and build.

Therefore, we propose:

A pro-active planning system based on detailed Local Plans and Community Plans drawn up with the full participation of local residents – and subject to their final approval through a local referendum.

In developing these plans, councils and their planning departments would have enhanced powers to specify design details in keeping with the scale and character of established communities.

Providing the resources for the upfront urban design and architectural work required for pro- active planning would come from a reallocation of resources from the current reactive planning process – and, if necessary, a small levy on the sale of local building land.

Regulations that prevent new development from following the pattern of successful and sought-after old developments should be abolished – with the particular objective of allowing new housing to take the form of traditional streets. [16]

To allow detailed plans to be drawn up at the scale of a street or of a whole neighbourhood, councils should have enhanced powers to assemble the necessary parcels of land – in particular we propose the creation of an auctioning system that would allow landowners to sell purchase options on their land: selling such an option would increase the probability of land being included in future development plans; while buying the option would reduce the cost of actually buying the land should the option be exercised. [17]

Potential developers would be allowed to contribute to the proactive planning process and the purchase of land sale options – but councils would decide on the Plans put forward for approval by a referendum of local residents.

Developers, however, would have the right to initiate (and pay for) a referendum if councils were abusing the proactive planning process to obstruct rather than enhance new development.

The ‘planning gain’ system would be reformed to allow payments to go directly to the residents most immediately disrupted by new development.

In order to provide a further spur to action on the part of planning authorities, a ‘right to build’ measure should be considered on suitable, but under-utilised, publicly-owned land; it is important that this shouldn’t become a loophole for commercial developers – so the right should, for instance, be limited to self-builders and/or housing associations.

New garden cities for the 21st century

The current planning system isn’t just marked by bitterness and conflict, but by a stunted vision of what development can achieve. The planning disasters of the post-war period have erased our collective memory of an earlier and much more successful era of large-scale development – in particular the achievements of the garden city movement.

In the 21st century, the founding of new garden cities [18] would not only provide new homes and jobs, they would also relieve development pressures on existing communities. By focusing development in new communities we can avoid many of the pitfalls of the current approach to planning.
This could also be a vital opportunity to regenerate areas that are strategically located, but where there are obstacles to piecemeal development – the Thames Estuary being the prime example. [19]

Therefore, we propose:

The creation of Garden City Corporations – each of them covering a specific area and headed by a mayor directly elected by the local residents.

Building on the model pioneered by the London Docklands Development Corporation, the Garden City Corporations would coordinate planning, land purchase and public infrastructure investment within their areas – providing a one-stop-shop for clearing the various obstacles that typically stand in the way of large-scale regeneration.

As well as having a direct say through an elected mayor, local people would also have a direct financial stake through the allocation of shares in each Corporation – and the closer the impact of new development, the more shares they’d get.

The Garden City Corporations would therefore be publicly-owned, but profit-making – generating revenue through land sales and through the negotiation of deals with central government over the retention of tax revenues from new development.

Garden City Corporations would not be imposed from above, but would be subject to approval by local referendum – with central government incentives for the first Corporations to be approved.

The eventual aim would be to develop a network of Garden Cities as a counterpart to the existing network of National Parks: whereas the purpose of the Parks is to protect the best of Britain through careful conservation, the purpose of the Cities would be to build the best of Britain through visionary development.

[11] Royal Institute of British Architects, ‘The case for space: The size of England’s new homes’, September 2011, page 9

[12] Financial Crisis Inquiry Commission, ‘Final report of the National Commission on the Causes of the Financial and Economic Crisis in the United States’, January 2011, page 415

[13] The Financial Times, blog, ‘Should the Bundesbank worry about German house prices?’, 25 July 2012 17 The Economist, ‘Housing starts’, 15 February 2014

[14] Department for Communities and Local Government, live tables, ‘Table 241: permanent dwellings completed, by tenure, United Kingdom, historical calendar year series’

[15] Council of Mortgage Lenders, News and Views, ‘What’s driving buy-to-let?’, newsletter, 16 November 2011; build- ing.co.uk, ‘Are we condemned to low levels of house building?’, 16 March 2011

[16] Calculated from Department for Communities and Local Government, live tables, ‘Table 244: permanent dwellings completed, by tenure, England, historical calendar year series’ and ‘Table 254: permanent dwellings completed, by house and flat, number of bedroom and tenure, England’

[17] For further analysis see Mark Wallace, ConservativeHome, ‘A budget for the marginals: 2) Reform stamp duty’, 12 March 2014

[18] For an in-depth study of this issue see Nicholas Boys Smith and Alex Morton, Create Streets / Policy Exchange, ‘Create streets – not just multi-storey estates’, January 2013

[19] For a detailed proposal for a land auctioning system see Tim Leunig, Centre Forum, ‘Community land auctions: working towards implementation’, November 2011

[20] Ideas for the development of new Garden Cities is the subject of the Wolfson Economic Prize 2014, proposals from the five finalists can be found here: http://www.policyexchange.org.uk/wolfsonprize

[21] For instance, see Andrew Adonis et al, Centre for London, ‘Go East: Unlocking the potential of the Thames Estuary’, February 2014